Matching whiskies to tax reforms

Press release

Date 14th December 2016
For immediate release

BDO’s ‘EYE ON TAX’ TOASTS TAX REFORMS IN AN INTOXICATING NEW VIDEO

In a light hearted video, complete with the stirring strains of the bagpipes; proud Scot, whisky enthusiast and Head of Tax at BDO NZ, Iain Craig has matched impending tax reforms to some of his favourite single malt whiskies.

Mr Craig, BDO’s ‘Eye on Tax’, toasts the festive season in a series of wryly humorous ‘tax tasting notes’ that also aim to educate.

Mr Craig commented,

“After a pretty busy year, we could all do with a bit of light relief. In actual fact, many of these reforms are surprisingly taxpayer friendly which makes a nice change, so we should also raise a glass to the IRD.

He continued

Hopefully, these will leave the viewer a little bit more educated about tax reforms and appreciating whisky, bearing in mind that both should be done in moderation!”

The video can be accessed here.

The full tax notes can be accessed here.

VIDEO HIGHLIGHTS

• The ‘Tainted Capital Gains’ tax reform and the Laphroaig Quarter Cask.

When a company (not being a Look Through Company) derives a capital gain from a transaction with an associated party, the gain becomes tainted. This means that the gain when distributed to a shareholder is taxable as a dividend. This tainting of a ‘related party capital gain” has been a source of irritation for tax advisers and companies alike. The Closely Held Companies Bill contains a welcome tax reform amending the definition of the type of gain which is tainted.

Our whisky match for this welcome reform is the Laphroaig Quarter Cask. It is known for its strong medicinal taste and was sold to the USA during the prohibition as a tonic.

The Quarter Cask is one of the best expressions of Laphroaig and is well matched with the amendments to “tainted capital gain” as the reforms provide a medicinal cure and a welcome tonic to a historical piece of tax legislation which caused so many headaches for taxpayers and tax advisers alike.

• The ‘Related Party Debt Remission’ and the 10 year old Talisker

The potential for debt remission income to arise under the financial arrangement rules has been a source of frustration for many years. Broadly, remission income occurs when a debtor is discharged from meeting its obligations under a financial arrangement and has not repaid the debt with full and adequate consideration.

Under the proposed amendments debt remission income will not arise where the debtor is a New Zealand resident company and the creditor is either:

- a member of the same wholly owned group of companies as the debtor; or

- it has an ownership interest in the debtor and the debt is remitted in proportion to the economic ownership of the creditor.

The Talisker is a single malt whisky which will simply not disappoint. It is a go to whisky for anyone wishing to impress or give as a suitable gift. The certainty created by the welcome changes to the debt remission rules are worthy of the “Talisker treatment.”

• Business Tax Transformation and the Glenkinchie 12 year old

The Inland Revenue is getting a new computer system and has introduced a number of business tax transformation and simplification measures in the Business Tax Bill to make sure taxpayers and the Inland Revenue make the most of the new system.

Perhaps the biggest changes are in relation to provisional tax. Not only are there are some very helpful changes reducing when use of money interest (UOMI) will be charged but there is a new method of calculating provisional tax being proposed.

A snapshot of these reforms are:

• An increase in the safe harbour threshold for UOMI from $50,000 to $60,000 of residual income tax;

• An extension of this safe harbour to companies and trusts.

• No UOMI on P1 and P2 instalments where taxpayers pay on the standard uplift basis and make the required payments on time; and

• The Accounting Income Method (AIM) where provisional tax is calculated on a real time basis.

The changes to UOMI will come into effect from the 2017/18 income year while the AIM for provisional tax will be delayed until 2018/19 when the respective accounting software providers and Inland Revenue can marry up the necessary technology.

The Glenkinchie 12 year old is a lowland malt. The dividing line between the Highland malts and the lowland malts was initially also driven by different rates of excise duty under the Wash Act of 1784 either side of the line. The Glenkinchie 12 year old is notable for its absence of peat and exhibits freshly cut grass and hints of licorice.

As a tip for summer try it fresh from the freezer as a refreshing dram. Like the provisional tax reforms the AIM regime are refreshing reforms which will appeal to some but not necessarily all.

ENDS

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